Title

Report
Eskom’s MYPD2 Tariff Application
Click to edit Master title style
03 December 2009
Brian Dames – Chief Officer (Generation Business)
0
Eskom‘s MYPD2 tariff application – setting the context
▪ History and context – 25 years of unrealistically cheap electricity
▪ Consequences of SA’s current electricity constraints
▪ Motivation for Eskom’s Multi-Year Price Determination (MYPD2)
application
– Changed assumptions and shift in Eskom’s risk profile
– Funding
– Risks
▪ Overview of the MYPD2 cost base
– Capital expenditure
– Operating expenditure
– Primary energy
▪ Implications
– Economic impact on SA
– Protection of the poor
▪ Way forward – meeting SA’s capacity requirements over the
next two decades
1
Drivers for the change
▪ Economic impact of price increase
-Recovery from recession will be slow
-Electricity not to constrain post recession growth
-Price increase by 16c/kWh per year
▪ Impact on the poor and small business
▪ Financially sustainable Eskom and operationally efficient
▪ Strategic shifts – We cannot do it alone
– Demand reduction – reduce SA energy intensity per GDP
– New sources of funding at project level and additional
borrowing
– Operational savings
– Next coal plant – not build by Eskom
– Road repair and maintenance to Government
– Project phasing
2
Benchmarking of generation business shows Eskom’s FY09
costs to be very low compared to peers
O&M cost
R/MWh, FY 2009 costs*
Eskom unit
1st quartile
2nd quartile
3rd quartile
4th quartile
Costs are relatively high
as it is one of the
recently ‘de-mothballed’
stations
Power stations
A B C D EF G H
▪
▪
▪
I
J
K
11 Eskom stations benchmarked against 100 international peers
In order to make stations comparable, technical adjustments were made to account for factors such as age of
technological standard, cooling water mechanism, type of mills, boiler design, etc
Almost 100% of generation operations costs were covered by the benchmarking analysis
1 Dec 2008 cost projections, forecast FY 2009 station send out as at 1 Jan
SOURCE: McKinsey benchmarking study 2008
3
New business drives the above inflation increase in
operating costs, while the real cost per MW is constant
New business drives the above inflation increase in
operating costs
Rm
Compound
annual growth
rate
+11%
38 780
35 621
1 882
1 521
2 275
31 312 3 028
DSM
800
Cost of cover 3 158 3 885
2 361
New
While the real cost per MW is constant
Total operating cost incl new business (Rm/MW) - real
Existing business operating cost (Rm/MW) - real
42 656
+52%
2 809
1 609
6 853
-20%
+43%
5 637
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
Existing
24 993
27 187
28 986
31 385
+8%
0.2
0.1
09/10
09/10
10/11
SOURCE: MYPD 2 application
11/12
10/11
11/12
12/13
12/13
4
Price driven increasingly by Capital Expenditure
Price components (35%)
120
Nominal c/kWh
100
80
60
40
20
0
FY09/10
FY10/11
Total Primary Energy
FY11/12
Operating costs
FY12/13
Capital (Depn & Returns)
FY13/14
FY14/15
Non Eskom generation
5
0
Italy
Hungary
Ireland
Czech Republic
UK
Japan
Portugal
Poland
Brazil
Spain
Singapore
Germany
Turkey
Denmark
Finland
2012/13 (1:7.4)
Switzerland
Mexico
India
Malaysia
China
Greece
New Zealand
2012/13 (1:10)
USA
Korea
Norway
Canada
France
South Africa
US cents/ kWh
We have the world cheapest electricity, but just do not have
enough
Industrial Tariffs Excluding Tax
30
25
20
15
10
5
……and assuming no change for other counties
6
0
Ireland
Italy
Germany
Netherlands
Japan
UK
Portugal
Hungary
Denmark
Spain
Czech Republic
2012/13 (1:7.4)
Brazil
New Zealand
Switzerland
Finland
Singapore
Turkey
Poland
France
2012/13 (1:10)
Greece
Norway
USA
Malaysia
Korea
Canada
China
Mexico
South Africa
India
US cents/kWh
Residential tariffs a different story
Residential Tariffs Excluding Tax
30
25
20
15
10
5
……and assuming no change for other counties
7
Eskom’s new alternative
New
New alternative
•
•
•
•
•
Smoothed over 3 years
35%, per year, over 3 years
Price increase over period to 82c/kWh
R14bn peak cash shortfall in Eskom
Eskom will look into other funding
interventions to address the expected
shortfall
• A re-opener may be necessary if our
funding assumptions do not materialise
Old
Previous alternative
• Smoothed over 3 years
• 45%, per year, over 3 years
• Price increase over period to 99c/kWh
• R30bn peak cash shortfall in Eskom
• Eskom will look into other funding
interventions to address the
expected shortfall
Not all risks are within control of Eskom &
participation of stakeholders necessary to
manage these risks
8
Summary
• We require strong partnerships to make this happen
• The significant shift in risk appetite will mean the introduction of
independent private producers in power generation, phasing of the
supply side expansion programme, intensifying energy savings and
greater cost efficiency
• Eskom commits to achieve the operational efficiencies in this
application.
• Robust monitoring process required
• Failure to reduce our energy use and introduce private participation in
power generation, would require a review of strategy and will create a
power generation gap in the next five years with its consequent
disastrous impact on the economy.
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Conclusion
• Ensuring the continuous supply of power
•The oxygen of South Africa
• Setting a foundation for a cleaner and
The value
proposition of this
application
• Build capacity for the future needs of the
remains the same
• Empower the industrial development and
greener future
country
economic growth of the country
• Create employment opportunities
• Build confidence in the future
10
Thank you

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